Lower bar looms in Indonesia’s tax hunt on Google

Indonesia may need to lower its expectations in its effort to collect a massive amount of taxes from United States-based technology giant Google, as the firm’s financial report suggests that it posted a relatively small profit in the country despite local clients paying millions of dollars for its services.

In financial reports prepared by Singapore-based Google Asia Pacific Pte. Ltd. and seen by The Jakarta Post, the company, which manages contracts for advertising, service and product purchases, reported that it gained US$109.2 million in revenues from Indonesian clients throughout 2015.

The company did not name any clients but suggested that its top10 customers contributed 55 percent to the total figure.

Indonesia’s tax authority has pledged to step up investigations into the local operations of Google after the company refused to pay the tax arrears demanded by the government.

According to Google Indonesia’s tax filing document, audited by Ernst & Young Indonesia, which was also seen by the Post, the company was subject to pay only Rp 5.2 billion (US$389,800) in income tax in 2015 based on the country’s 25 percent rate for institutional taxpayers since it only gained Rp 20.88 billion in profit that year.

The 2015 profit skyrocketed by 174.7 percent from 2012 when it gained only Rp 7.6 billion in profit and paid Rp 1.8 billion in income taxes.

Jakarta Special Tax Office head Muhammad Haniv refused to comment on the data.

The income tax Google paid in 2015 was a far cry from the estimates made by the Indonesian tax authority that the company owed about Rp 5 trillion in back taxes and penalties.

Based on the tax office’s calculations, Google should pay its due taxes with a 150 percent penalty. Should the company ignore the government’s request, the tax authority will carry out a full investigation with a 400 percent fine, as stipulated in the General Taxation System (KUP) Law.

However, before carrying out the full investigation, the tax authority has requested Google to submit reports of its transactions in Indonesia, as it operated many types of businesses in the country.

The government, through the Communications and Information Ministry, has also tried to force Google and other over-thetop (OTT) companies such as Yahoo and Facebook to each set up a Permanent Establishment (BUT). As a BUT, they would each be required to report all domestic earnings from work activities in the nation and pay taxes.

Haniv previously insisted that Google Indonesia was a BUT as it established in the country a “dedicated cached server”, or network server that saved web pages or other internet content locally.

Google Indonesia provides assistance on Google services to clients and potential clients. In return, Google Asia Pacific Pte. Ltd. reimbursed all expenses paid by the company with additional 8 percent profit. This explains the tiny fraction received by Google Indonesia compared to the revenues received by Google Asia Pacific Pte. Ltd.

Center for Indonesia Taxation Analysis (CITA) executive director Yustinus Prastowo said the documents submitted by Google were more accurate and legal due to being audited by an independent public accountant compared to various numbers circulated in the public without any clear basis.

“These figures [in Google’s financial reports] have been officially submitted by the company, including to the Singaporean tax authority. The government should use those ones [to calculate the tax],” he said on Tuesday.

By accepting the documents, the government might need to face the reality that Google actually owned a relatively small business in Indonesia, thus was not strong enough to make it into a BUT, which means that the company is subject to income tax (PPh) and could violate a tax treaty it had with Singapore.

“Once it is considered a BUT, it can be a bad precedence. The government may need to step back a little because we still don’t have legal tools [for that],” he said.

“We can still gain some tax money from Google anyway and change rules in the future based on [global initiative to fight tax avoidance initiated by] the Organization for Economic Cooperation and Development [OECD].”